Understanding Auto Refinance Costs

Car dealer handing key for a refinanced car to a smiling woman
Photo: praetorianphoto / Getty Images

Let's face it: cars cost a whole lot of money. The cost of financing a car alone can easily make it nearly impossible to afford. Throw in a bankruptcy or no credit history, and you could be paying outrageous interest fees.

However, what happens to your auto loan rates when you overcome the bankruptcy or finally build up some credit history? Refinancing could be the number-one solution to the problem, but do you know how much it costs?

Refinancing a Car Versus Refinancing a House

When most people think of refinancing they think of refinancing a home mortgage. Refinancing a home mortgage is racked with fees. Home appraisals, title fees, and other closing costs can easily total thousands of dollars when it comes to securing a lower rate.

Fortunately, cars usually don't need appraisals for refinancing. Lenders usually do not require large fees, and the only closing cost usually comes from changing the title.

The Cost of Refinancing a Vehicle

  • Lender Fee: Approximately $10
  • Title Fee: Usually under $75

If you're looking into refinancing, your savings will be much greater than $85. One thing to double-check, though, is the terms of your current loan. The last thing you will want to do is pay off a loan that has a stipulation requiring you to pay all remaining interest, in which case, there is no point in refinancing. Verify that there are no penalties for paying off your current loan before following through with refinancing.

Who Should Refinance

Has your credit score improved since you purchased your vehicle? Do you have a willing cosigner you did not have before? Actually, a better credit score or a good cosigner are what triggers getting a lower loan rate.

The best time to refinance is a year or two into a four or five year loan with an improved credit score in hand. Check a couple of different car loan sources to see where you can get the best rate. Keeping your loan in the same term, or shorter one, will benefit you the most with the overall savings of your loan.

Extending your loan term is good for lowering your payment, but you will not likely save on the overall cost of your loan. It depends on your financial goals. If you are trying to save money on the overall cost of your loan, being able to lower your payment in order to keep your car will be the deciding factor in what type of auto refinance you are looking to select.

Even a small improvement in your credit score can save you money. Check your credit score at least once a year. If it has improved more than 50 points, then it is worth the effort to check into refinancing.

Maybe you can even hit the gold mine of savings and get a lower payment along with a shorter loan term. It is possible for credit scores to change rapidly. Knowing your score and taking the time to look into available rates could save you hundreds and sometimes even thousands of dollars. The cost of refinancing should not have much of an impact on your overall savings.

Frequently Asked Questions (FAQs)

What are the interest rates for refinancing auto loans?

Interest rates change every day, so the going rates today might not be the same tomorrow. To get a sense of what interest rates you can expect for an auto loan, you can check the Federal Reserve's measurement of the prime loan rate. The prime loan rate is essentially the lowest possible rate at that moment. You won't get the prime rate, because lenders add points to the interest rate based on your perceived riskiness as a borrower. Still, studying prime rate trends can help you get a sense of how much rates have decreased or increased since your last loan.

Do you usually get better rates when you refinance an auto loan?

Too many factors impact refinancing rates to ensure a better rate. The prime loan rate and broader interest rate environment are major factors, so if those have declined since you got the loan, then you may be more likely to get a better rate. If your credit score has increased since you got the loan, that's another factor that can lower your rate. If you have the option to make a lump-sum payment when you refinance, then that can help you avoid interest charges on the remaining balance.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Board of Governors of the Federal Reserve System. “Bank Prime Loan Rate [MPRIME].”

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